Weekly Newsletter 10/16/09
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Market Summary Weekly Breakout Report Top Breakout Choices Top 2nd Chances New Features Tip of the Week
Prior editions of this newsletter with our valuable Tips of the Week are available here.
 Weekly Commentary  

As the recovery proceeds companies prefer to make productivity improvements by investing in technology before people. This is one reason why we can have a recovery at the same time as the economy continues to lose jobs. It also explains why earnings expectations for technology companies are higher than for the rest of the market, which goes some way to explaining why the NASDAQ Composite has vastly outperformed the S&P 500 for the year (36% gain vs 20%).

The NASDAQ's gains have come in a series of spurts followed by a short period of consolidation. Our equivolume chart of the NASDAQ Composite for the last four weeks shows that the beginning of October marked the beginning of another of those spurts with consolidation now beginning again.

equivolume chart

The 9 month NASDAQ daily chart shows that we have seen this pattern several times now. The chart below shows the 1-standard deviation and 2-standard deviation Bollinger Bands. What we observe is that there are periods of two to three weeks where the index rides up the upper range but starts to correct as soon as the price falls to within the 1-standard deviation band. At that point the price slides until it hits the lower 2-standard deviation boundary but then quickly reverses to start to rise again. Note how long the periods of up trend are with relatively slow rollovers to consolidation compared to rapid reversal when the lower band is breached.

NASDAQ Composite

The inference from this is that one should hold (that is not take out new positions) once the index falls to within the 1-standard deviation band - as it has now - and then start to add to holdings when the index reverses in the outer bottom band. If the index falls below its 50 dma, as it did in early July, then it would be prudent for it to wait until it has recovered above the 50 dma.

There are no guarantees of course that the future will be like the recent past but this is a reasonable assumption until the index closes consistently below its 50 day moving average.

 New Features this Week Additional Value that we added this week
No new features this week.
This Week's Top Tip Tips for getting the most out of our site
The weekly commentary contains this weeks tip.
 Market Summary Overview of market direction and industry rotation
Index Value Change Week Change YTD Trend
Dow 9995.91 1.33% 13.9% Down
NASDAQ 2156.8 0.82% 36.76% Up
S&P 500 1087.68 1.51% 20.42% Up
Russell 2000 616.18 0.2% 23.37% Up
Wilshire 5000 11219.4 1.37% 23.46% Up
 Best Performing Index
1 Week 13 Weeks 26 Weeks Year-to-Date
S&P 500
1.51 %
Russell 2000
14.32 %
NASDAQ Composite
28.91 %
NASDAQ Composite
36.76 %
 Best Performing Industry (by average technical score over each period)
1 Week 3 Weeks 13 Weeks 26 Weeks
Publishing - Newspapers Home Furnishing Stores Auto Dealerships Auto Parts Stores
 Most Improved Industry (by change in technical rank2)
+ 54
+ 99
Long Distance Carriers
+ 213
Long Distance Carriers
+ 210
Charts of each industry rank and performance over 12 months are available on the site

1The Market Signal is derived from our proprietary market model. The market model is described on the site.
2The site also shows industry rankings based on fundamentals, combined technical and fundamentals, and on price alone. The site also shows daily industry movements.
 Weekly Breakout Report How confirmed breakouts performed this week
# of Breakouts
Period Average1
Max. Gain During Period2
Gain at Period Close3
This Week 8 13.23 5.03% 2%
Last Week 9 14.69 15.1% 9.03%
13 Weeks 173 15.23 21.07%
1The average number of breakouts in each week over the previous 13 weeks.
2This represents the return if each stock were bought at its breakout price and sold at its intraday high.
3This represents the return if each stock were bought at its breakout price and sold at the most recent close.
 Top Breakout Choices Stocks on our Cup-and-Handle list with best expected gain if they breakout
Company Name
Expected Gain1
Best Overall SWC Stillwater Mining Co 106
Top Technical CBOU Caribou Coffee Company Inc 80
1This is the gain predicted by our Expected Gain model if the stock breaks out. Expected Gains for all cup-and-handle stocks are published on our site.
 Top Second Chances Stocks that broke out this week and are still in buyable range
Company Name
Expected Gain1
Best Overall WNS WNS (Holdings) Ltd 64
Top Technical WNS WNS (Holdings) Ltd 64
Top Fundamental RVBD Riverbed Technologies Inc 54
Top Tech. & Fund. RVBD Riverbed Technologies Inc 54
1This is the gain predicted by our Expected Gain model after the stock has broken out which uses the volume on breakout as a predictive term. Because the model variance is +/- 38% the expectation can be negative.

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